GOVERNMENTPortugal moved from authoritarian rule to parliamentary democracy following the 1974 military coup against dictator Marcello Caetano, himself a continuation of the long-running dictatorship of Antonio Salazar. After a period of instability and communist agitation, Portugal ratified a new Constitution in 1976. Subsequent revisions of the Constitution placed the military under strict civilian control; trimmed the powers of the president; and laid the groundwork for a stable, pluralistic liberal democracy, as well as privatization of nationalized firms and the government-owned communications media. Portugal joined the European Union in 1986, and has moved toward greater political and economic integration with Europe ever since.

The four main branches of the national government are the presidency, the prime minister and Council of Ministers (the government), the Assembly of the Republic (the parliament), and the judiciary. The president, elected to a 5-year term by direct, universal suffrage, also is commander in chief of the armed forces. Presidential powers include confirming the prime minister and Council of Ministers; dismissing the prime minister; dissolving the assembly to call early elections; vetoing legislation, which may be overridden by the assembly; and declaring a state of war or siege. The Council of State, a presidential advisory body, is composed of six senior civilian officers, former presidents elected under the 1976 constitution, five members chosen by the assembly, and five selected by the president.

The government is headed by the prime minister, who is nominated by the assembly for confirmation by the president. The prime minister then names the Council of Ministers. A new government is required to present its governing platform to the assembly for approval.

The Assembly of the Republic is a unicameral body composed of up to 230 deputies. Elected by universal suffrage according to a system of proportional representation, deputies serve terms of office of 4 years, unless the president dissolves the assembly and calls for new elections. The national Supreme Court is the court of last appeal. Military, administrative, and fiscal courts are designated as separate court categories. A nine-member Constitutional Tribunal reviews the constitutionality of legislation.

The Azores and Madeira Islands have constitutionally mandated autonomous status. A regional autonomy statute promulgated in 1980 established the Government of the Autonomous Region of the Azores; the Government of the Autonomous Region of Madeira operates under a provisional autonomy statute in effect since 1976. Continental Portugal is divided into 18 districts, each headed by a governor appointed by the Minister of Internal Administration. Macau, a former dependency, reverted to Chinese sovereignty in December 1999.

Current AdministrationIn December 2001 voters gave a decisive victory to the center-right Social Democratic Party (PSD) in municipal elections, forcing Socialist Prime Minister Guterres to resign on December 17, 2001. National elections took place on March 17, 2002, 2 years ahead of schedule. The PSD returned to power after a 6-year absence, winning a plurality of the vote and legislative seats. The new prime minister, Jose Manuel Durao Barroso, formed an alliance with the conservative Popular Party (CDS/PP), giving the ruling coalition an absolute majority in the parliament. President Jorge Sampaio is from the opposition Socialist Party (PS). The government has committed itself to public-sector austerity and business incentives to promote growth, trade, and productivity. Its challenges include rising unemployment, meeting euro-zone fiscal requirements, and adapting to European Union and NATO enlargement.

Principal Government OfficialsPresident of the Portuguese Republic--Dr. Jorge SampaioPrime Minister--Jose Manuel Durao BarrosoMinister of Foreign Affairs--Teresa Patricio GouveiaMinister of State and Defense--Paulo PortasMinister of State and Finance--Manuela Ferreira LeiteAmbassador to the United States--Pedro Manuel dos Reis Alves CatarinoAmbassador to the United Nations--Gon�alo Aires de Santa Clara Gomes

Portugal maintains an embassy in the United States at 2125 Kalorama Road, NW, Washington, DC 20008 (tel. 202-328-8610); consulates general in New York City, Boston, San Francisco, and Newark, NJ; consulates in Providence, RI and New Bedford, MA; and honorary consulates in Honolulu, Los Angeles, Houston, New Orleans, Chicago, Philadelphia, Miami, San Juan, and Waterbury. The Portuguese National Tourist Office in the United States is located at 590 Fifth Avenue, New York, NY 10036 (tel: 212-354-4403).

ECONOMYPortugal's membership in the European Union (EU) contributed to stable economic growth, largely through increased trade and an inflow of EU funds for infrastructure improvements. Until recently, average annual growth rates consistently exceeded those of the EU average, and since joining the EU in1986, Portugal has made significant progress in raising its standard of living to that of its EU partners. GDP per capita on a purchasing power parity basis rose from 51% of the EU average in 1985 to 78% in early 2002, although the rate of convergence has slowed in recent years.

In order to enter the European Monetary Union (EMU) in January 1999, Portugal agreed to cut its fiscal deficit and undertake structural reforms. The EMU brought exchange rate stability, lower inflation, and lower interest rates. Falling interest rates, in turn, lowered the cost of public debt and helped the country achieve its fiscal targets. However, private sector borrowing increased dramatically. By 2001, the economy was in serious external imbalance, with a large current and capital account deficit. The government's 2001 budget deficit was 4.2% of GDP, well over the Eurozone's Stability and Growth Pact 3% limit.

At the same time, the Portuguese economy headed into recession; with a 1.0%-1.5% decline projected for 2003. Unemployment was 6.2% in mid-2003. The current government has made reducing the weight of public spending on the economy a top priority, although the economic slowdown has made fiscal austerity that much more painful to implement. In 2004, public spending is expected to total 46.6% of GDP, down slightly from 2002. The government hopes that labor reform legislation, set to take effect in late 2003, and corporate tax cuts, proposed as part of the 2004 budget, will lead to renewed growth in 2004.

Portugal's economy is based on traditional industries such as textiles, clothing, footwear, cork and wood products, beverages (wine), porcelain and earthenware, and glass and glassware. In addition, the country has increased its role in Europe's automotive sector, and has a world-class mold-making industry. Services, particularly tourism, are playing an increasingly important role. Portugal will be forced into greater self-sufficiency when EU funds are likely to be discontinued in 2006. EU expansion into eastern Europe also will erase Portugal's competitive advantage, low labor costs. The government is working to change Portugal's economic development model from one based on public consumption and public investment to one focused on exports and private investment.

FOREIGN RELATIONSPortugal has been a significant beneficiary of the European Union and is a proponent of European integration. Portugal held the presidency of the EU for the second time during the first half of 2000. Portugal used its term to launch a dialogue between the EU and Africa and to begin to take steps to make the European economy dynamic and competitive. In 2002, the Euro began to circulate as Portugal's currency.

Portugal was a founding member of NATO; it is an active member of the alliance by, for example, contributing proportionally large contingents in Balkans peacekeeping forces. Portugal proposed the creation of the Community of Portuguese Language Countries (CPLP) to improve its ties with other Portuguese-speaking countries. Additionally, Portugal has participated in a series of Ibero-American summits. Portugal was a strong advocate of independence for East Timor, a former Portuguese colony, and has committed troops and money to East Timor, in close cooperation with the United States, Asian allies, and the United Nations. Portugal also is contributing a small gendarme force and funds for other training and development projects for Iraq reconstruction.

U.S.-PORTUGUESE RELATIONSBilateral ties date from the earliest years of the United States. Following the Revolutionary War, Portugal was the first neutral country to recognize the United States. On February 21, 1791, President George Washington opened formal diplomatic relations, naming Col. David Humphreys as U.S. minister.

Contributing to the strong ties between the United States and Portugal are the sizable Portuguese communities in Massachusetts, Rhode Island, New Jersey, California, and Hawaii. The latest census estimates that 1.3 million individuals living in the United States are of Portuguese ancestry, with a large percentage coming from the Azores. There are about 20,000 Americans living in Portugal.

The defense relationship between the United States and Portugal is excellent, centered on the 1995 Agreement on Cooperation and Defense (ACD). Lajes Air Base in the Azores has played an important role in supporting U.S. military aircraft engaged in counter-terrorism and humanitarian missions, including operations in Afghanistan and Iraq. Portugal also provides the United States and other allies access to Montijo Air Base and a number of ports.

Portugal defines itself as "Atlanticist," emphasizing its support for strong European ties with the United States, particularly on defense and security issues. The Portuguese Government has been a key ally in U.S.-led efforts in Iraq, and hosted the Azores Summit that preceded military action. Portugal sees its role as host of NATO's newly renamed "Headquarters West" (formerly SOUTHLANT), located near Lisbon, as an important sign of alliance interest in transatlantic security issues. As a staunch NATO ally since the founding of the organization, Portugal is a participant in NATO peacekeeping. It used its 2002 chairmanship of the OSCE to advance U.S. and European security objectives.

U.S.-Portuguese trade is relatively small, with the United States exporting $863 million worth of goods in 2002 and importing an estimated $1.67 billion. While total Portuguese trade has increased dramatically over the last 10 years, the U.S. percentage of it--both exports and imports--has declined. The Portuguese Government is seeking to increase exports of textiles and footwear to the United States and is encouraging greater bilateral investment. U.S. firms play a significant role in the automotive, pharmaceutical, computer, and retailing sectors in Portugal.